Companies are offering larger amounts of corporate bonds to retails than ever in the past five years, and now may be an ideal time to take advantage of the attractive interest rates and high yields, say industry analysts.
At the end of September, the interest rate for five-year corporate bonds with AAA ratings was 2.12%, higher than the government bond by 62 basis points at the same time (and also higher than the 1.88% coupon rate at the end of 2019). The BBB rating was 4.87%, 106 basis points higher than the government bond at the same time (and also higher than the 4.19% coupon rate at the end of 2019).
The credit spread, or difference in yield between government and corporate debentures, reflects that the default risk of corporate bond issuers (from the market’s viewpoint) has picked up significantly since mid-March, due to worries over the impact of Covid-19 and concerns over corporate bond defaults.
At the end of last year, the credit spread for five-year investment-grade bonds was 63 basis points (above government bonds) for the AAA rating and 298 basis points for the BBB rating bond.
“The credit spread between the government